What is the accounting cycle?
An Accounting cycle provides a guide to record, analyse and provide the final report of a business’s financial activities. This cycle makes business activities and financial accounting easier for business owners. The closing of an accounting cycle provides the business owner with the full report of the financial report of the business.
Here are the 8 steps of maintaining accounting
- Identifying transactions
The very first step in the accounting cycle is identifying the transaction. Companies may have many financial transactions throughout a particular period. All these transactions need to be recorded for Accounting Purposes.
- Recording transactions
This is the second step that is followed in the accounting cycle. This is the step where every transaction that is made by the company is recorded in journals.
Right after recording a transaction, it should be posted in the general ledger account. This provides a breakdown of all the accounting activities. This provides room for better monitoring of financial position and statuses of accounts. One of the most common accounts mentioned in the general ledger is the cash account which gives the current details of the availability of cash.
- Unadjusted trial balance
The calculation of the trial balance is the fourth step. The trial balance gives information about the unadjusted balance in each account. The unadjusted trial balance is then carried out to the fifth step.
A thorough analysis of the worksheet is done as the fifth step. A worksheet is created and the debits and credits side will be made equal. Adjustments will be made in case of any discrepancies.
- Adjustments in journal entries
Adjustments are made in journal entries wherever necessary.
- Making Financial Statements
Once the adjustments have been made, the final statements are generated. This statement includes income statements, balance sheets and cash flow statements.
- Closing of the books
Finally, the accounting cycle is ended by closing of the company’s books. The closing statement gives a complete overview and analysis of the performance of the company over a period.
The 8 step accounting process makes it easier for accountants to carry out the accounting process. This ensures consistency, accuracy and efficiency in the accounting process.
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